Lately I have noticed more instances of clients asking lawyers to sign nondisclosure agreements (“NDAs”) like this:
Law Firm shall treat as confidential and not reveal to any third party (including any current or future client) any Confidential Information of Paranoid Partners LLC (“Paranoid”), its affiliated investment advisers or broker-dealers, or any of its current or future subsidiaries, sponsored funds, or other investment products. “Confidential Information” means any and all confidential and proprietary information of Paranoid’s current or proposed business, past, present, or future products or services, marketing plans, business plans, regulatory or other strategies, or any other information that Paranoid identifies as confidential or which by its nature would reasonably be deemed to be confidential, including all communications or documents subject to attorney-client privilege. This confidentiality provision shall not limit or diminish, in any way, any duties owed by Law Firm to Paranoid under any applicable model rules of professional conduct. This confidentiality provision shall survive in perpetuity. Bwahaha!
So what advantage do these clients, or their lawyers, believe is gained by obtaining an express contractual remedy for nondisclosure? Have they been so scarred or scared by Sarbanes-Oxley, or conditioned by HIPPA and other privacy laws, that they deem the remedy of an attorney’s potential disbarment an inadequate deterrent to disclosure? In asking its lawyers to sign an NDA is Paranoid Partners being paranoid or prudent?
There is at least one argument to be made for requesting such a provision – Rule 1.6 has exceptions:
A lawyer may reveal information relating to the representation of a client to the extent the lawyer reasonably believes necessary:
(1) to prevent reasonably certain death or substantial bodily harm;
(2) to reveal the client's intention to commit a crime and the information necessary to prevent the crime;
(3) to prevent the client from committing a fraud that is reasonably certain to result in substantial injury to the financial interests or property of another and in furtherance of which the client has used or is using the lawyer's services;
(4) to prevent, mitigate or rectify substantial injury to the financial interests or property of another that is reasonably certain to result or has resulted from the client's commission of a crime or fraud in furtherance of which the client has used the lawyer's services;
. . . .
(7) to comply with other law or a court order.
Colo. RPC 1.6(b) (emphasis added).
The financial whistleblower exceptions of Rule 1.6(b) were a direct response to Sarbanes-Oxley. In August 2003 the ABA House of Delegates, by a 218-201 vote, amended Rules 1.6 and 1.13 to accommodate the noisy withdrawal and up-the-ladder provisions created by Sarbanes-Oxley, provisions many states had already adopted in their attorney professional codes. Because the language Rule 1.6 is merely permissive, a confidentiality provision of the kind set out above ostensibly plugs a gaping hole in a client’s security defenses. But does such a provision provide any real protection? I doubt it.
First, a client seeking such protection must find a lawyer willing to hamstring herself by signing such an agreement. Rule 1.6(b) is permissive, so there is no obvious legal impediment to an attorney agreeing to its terms. Still, such a request should, at a minimum, cause any attorney to whom it is proffered to raise at least one eyebrow.
Second, a client seeking counsel’s contractual silence needs be certain that, should push come to shove, the threat of a civil suit for breach of contract will be adequate to gag a lawyer willing to sign it. This is more problematic. If ordered to disclose information by a court, will a capitulating counselor really be willing to rot in jail for Bernie Madoff? Self-interest, if not ethical considerations, weigh heavily against the efficacy of such provisions under these circumstances.
Third, if the reason for proffering or threatening to enforce such a provision is to further a criminal purpose, or to conceal a crime which the lawyer was duped into assisting, one hopes that the lawyers advising their clients to seek NDAs from other lawyers are also counseling their clients that the prospect of such an agreement being enforced is slightly less than that of the Colorado Rockies and the CU Buffs winning the World Series and the College Football Playoff in the same year.
Fourth, assuming the client’s lawsuit against the lawyer for breach of the NDA survives a motion to dismiss, just imagine the reaction of a jury empaneled to hear such a case to the plaintiff-client’s opening statement:
Ladies and gentlemen of the jury, Plaintiff concedes that it engaged Defendant to enlist its unwitting legal assistance in furtherance of committing crimes that were certain to cause substantial injury to the financial interests of widows, orphans, and cripples. The court will instruct you, however, that you must completely disregard Plaintiff’s confessed criminal intent. This . . . this . . . lawyer breached a contractual obligation to keep her mouth shut. As a consequence my client’s evil plan was foiled and its officers are going to jail. Justice must be done! Damages must be awarded!
Yeah. Right. If the jury does not immediately leap out of the box, set upon the plaintiff’s representative and its lawyer, and lynch them both from the courtroom’s rafters, it is easy to envision the damages award rivaling that of the jury in Dering vs. Uris – the libel action brought by Dr. Wladislaw Dering, one of the butchers of Auschwitz, against Leon Uris for his description of Dering’s atrocities in Exodus (and memorialized in the second television mini-series to air in the United States, QB VII: One ha'penny – the smallest coin of the realm.
Lawyer NDA provisions are simply too clever by half. An honest client has nothing to fear from an honest lawyer – the protections of the Rules of Professional Conduct and the attorney-client privilege are ample fortification against disclosure. The law of professional malpractice and agency already provide civil damages remedies in the event of breach. Moreover, lawyers are not predisposed to capriciously jeopardize their professional licenses or fortunes. On the other hand, a dishonest client should place little or no stock in such contractual provisions as a bulwark against whistleblowing for the reasons noted above. There is a far greater chance such a provision will hang a dishonest client than save it.
The presentation of an NDA to an attorney should send red flags soaring, and trigger a full and frank discussion of why the client feels it is necessary, as well as a due diligence investigation of the would-be client before accepting an engagement on such terms. While it may be the client is simply acting on the advice of other counsel, or because “everyone else is doing it,” such advice and rationale are dubious. If a client genuinely believes such a provision is necessary to remind an attorney of its existing legal obligations of confidentiality, the client should be interviewing smarter lawyers, or, if the client expects an NDA will effectively gag an ethical attorney, dumber ones.
 I don’t mean to pick on the financial industry; I have reviewed similar agreements from clients in other, less regulated industries. However, most of these requests emanate from businesses in the financial industry.
 For an exhaustive and fascinating history of the political machinations surrounding the ABA’s reversal of its position regarding Rule 1.6 in the face of Sarbanes-Oxley see Roger C. Cramton, George M. Cohen, and Susan P. Koniak, Legal and Ethical Duties of Lawyers after Sarbanes-Oxley, 49 Vill. L. Rev. 725 (2004). A searchable version of this article is available on the Boston University Law School website (BU School of Law Working Paper Jan. 12, 2012)
 Although the exceptions of Rule 1.6(b)(1)-(3) apply only to disclosures made to prevent a client’s future misconduct, Rule 1.6(b)(4) expressly permits a lawyer to reveal otherwise protected client information “to . . . mitigate or rectify substantial injury to the financial interests or property of another that . . . has resulted from the client's commission of a crime or fraud in furtherance of which the client has used the lawyer's services.”